All signs point to a continuation of economic growth in the U.S. this year, although the margin for change is thinner than before, an economic expert told suburban business leaders Wednesday at the Economic Summit hosted by Porte Brown Accountants and Advisors in partnership with the Daily Herald Business Ledger.
Brian Leach, senior vice president and credit strategist for global investment management firm Pimco, told the group at Venuti's Banquet Hall in Addison that U.S. economic growth continues to be buoyed by low interest rates and strong consumer spending. And while domestic growth might slow toward the end of the year, he noted global economic growth has increased to a point where it could catch up to the U.S.
"We might see a little slowdown here in the U.S., but we still think no recession this year," he said. "Finally, we're going to see some countries outside the U.S. support what we have here."
Leach noted the economic "cores" like wage growth and housing are showing positive returns, which in turn will continue to support the overall economy.
However, he noted the Federal Reserve has entered a "cutting phase" and predicted the Fed might still make two more cuts in interest rates this year. With markets highly dependent on Fed action, it could cause a negative reaction if an unexpected event were to occur, he said.
"If we do get into an area where the U.S. would enter a recession, it might be a bit more prolonged than what we have seen historically," Leach said.
He noted in particular the spread of the coronavirus that originated in China could impact global economies, although it's too early to make any specific assessment.
"We do think there's a real impact to (gross domestic product) in the first quarter," he said. "If it continues, you could actually see GDP in the U.S. dip close to zero."
Technology companies will likely be safe from any impact of the virus, but Leach said global energy and commodities will definitely be affected by the virus' continued spread, especially in China.
While the tax changes signed by President Donald Trump in 2017 provided numerous tax opportunities for businesses, Mark Gallegos, senior tax manager with Porte Brown, told the business leaders they need to be aware of the complexities and limitations of those breaks in order to assure they are getting their share from the changes.
For example, he cited the "pass through income deduction," which affects most of the nation's small and a medium sized businesses. The deduction -- commonly known as QBI -- allows a business to take a 20 percent deduction on revenues, he said. But service businesses do not get that deduction, he added, because the tax legislation -- approved as a spending bill -- has a cap of $1.5 trillion.
"If you give this to everybody, they're going to blow this out of the water," Gallegos said. "So they've got to control the amount of spending that's going on with this, and that's why you have these different caps on this."
He said owners should work with financial experts to make sure they are in the right positions to take advantage of the changes, as well as plan ahead as the business tax landscape could change again after the 2020 elections.
"If we have a massive overhaul again in the tax system, the earliest it would take affect would be 2021," he said. "Ideally there will be change and there will be tweaks."